Camping World Holdings Inc (CWH) 2018 Q3 法說會逐字稿

Good afternoon, and welcome to Camping World Holdings Conference Call to Discuss Financial Results for the Third Quarter of 2018. (Operator Instructions) Please be advised that this call is being recorded and the reproduction of the call in whole or in part is not permitted without written authorization from the company.

Participating on the call today is Marcus Lemonis, Chairman and Chief Executive Officer; Brent Moody, President; Tom Wolfe, Chief Financial Officer; and Roger Nuttall, President, Dealership segment.

I would now turn the call over to Mr. Moody to get us started.

Thank you, and good afternoon, everyone. A press release covering the company's third quarter 2018 financial results was issued this afternoon and a copy of that press release can be found in the Investor Relations section on the company's website.

Management's remarks on this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These remarks may include statements regarding our business goals, plans, abilities and opportunities, industry and customer trends, growth and diversification of our customer base and increase in market share, retail location opening, acquisitions and related expenses, increases in our borrowings and anticipated financial performance.

Actual results may differ materially from those indicated by these statements as a result of various important factors, including those discussed in the Risk Factors section in our Form 10-K and other reports on file with the SEC. Any forward-looking statements represent our views only as of today, and we undertake no obligation to update them.

Please also note that we will be referring to certain non-GAAP financial measures on today's call, such as adjusted EBITDA and adjusted earnings per share diluted, which we believe may be important to investors to assess our operating performance. Reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures are included in our earnings release and on our website.

All comparisons of our 2018 third quarter results are made against our 2017 third quarter results unless otherwise noted.

I'll now turn the call over to Marcus.

Thanks, and good afternoon, everyone. We appreciate your time and more importantly, your interest in Camping World.

Over the last several years, we publicly talked a lot about the unique qualities of our business and how our operating model was designed to deliver sustainable cash flows and long-term profitable growth as the most important metric. While it may have been easier for us to grow in a strong rising environment, our true long-term growth is based on a solid infrastructure, a commitment to our customer, a healthy workplace and our focus on maintaining a model that delivers healthy and consistent margins, cash flows and profitability.

We are the largest RV dealer in the world by a very wide margin, and no RV company has the combined resources and tools in the toolbox that we have. We have spent the last 15 years creating a unique business model that combines a comprehensive portfolio of high margin, recurring revenue RV products and services with iconic industry brands and a massive database in excess of 4.5 million active customers.

In 2018, the RV industry has experienced noise around excess channel inventory, tariffs and heavy retail promotional activity. While these broader macroeconomic trends come and go, we are laser-focused on how we manage our business. For example, at the beginning of the year, our new RV inventory was in excess of $1.1 billion. After making several acquisitions and opening other stores, our discipline and focus on asset management drove that number down to just over $900 million at the end of the quarter, a reduction in inventory of almost $200 million, with our new motorized units down 41.7% and our new towable units inventory down 12.3%. As you would imagine, this positions us strategically for aggressive and opportunistic RV inventory buying and selling in the coming quarters.

While this drastic reduction in inventory has cost us top line revenue against heavy discounting and promotional activity by others, we strongly believe that this discipline allowed us to maintain healthy margins and, most importantly, healthy bottom line profitability.

In the third quarter, consolidated revenue increased 6.2% to $1.3 billion, and we're able to maintain gross margin at 28.7% in the third quarter. Our focus on margin and rigorous expense management allowed us to achieve more than $100 million of adjusted EBITDA in the third quarter, slightly above the analyst consensus estimate.

As I said earlier, we ended the quarter with almost 4.5 million active customers, but one significant highlight is a new milestone for the company, of more than 2 million paying Good Sam Club members. Lower new RV inventory levels, particularly in motorized, coupled with our focus on maintaining prices and healthy margins, definitely put some expected pressure on our new vehicle sales in the quarter.

Despite promotional pressure overall, new towable unit sales were up 5.1% and the new same-store towable unit sales were only off 1.5%. On a per dealership basis, we intentionally drove our inventory of new motorized RVs down by more than 38% in the quarter. With drastic destocking of motorized inventory, new same-store motorized units sold were down 19.6%.

Now that we've achieved our inventory target levels, both with mix and model, we plan to use all of our available resources and buying power going forward. As we wind down 2018, we've made several investments into the infrastructure, new categories and leading technology. As we head into 2019, we expect to continue to pursue accretive and opportunistic RV dealership acquisitions, control CapEx and invest in relevant technology that will make us better. In addition to the foregoing, we will always consider areas to invest our capital with attractive returns on investment such as deleveraging and share repurchase programs.

I will now turn the call over to Brent Moody.

Thank you, Marcus. As we close out 2018 and head into 2019, we are focused on driving long-term profitable growth around 3 strategic priorities: Expanding our customer base, growing our Good Sam Club file size and increasing our number of transactions, all of which we accomplish primarily through the opening of new locations, expanding our products and service offerings and developing additional channels of distribution.

In the third quarter, we closed on one acquisition in Antioch, Illinois that will boost our sales and service capacity in the Northern Illinois, Southern Wisconsin market. In October, we closed on 2 additional acquisitions in Pasco, Washington and DeKalb, Illinois and recently signed a purchase agreement to acquire Sierra RV in Reno, Nevada, a market we have been pursuing for some time. We also plan to open a new Camping World retail store and dealership in the next 60 days in the Rockford, Illinois area as we further expand our Illinois presence.

In a highly fragmented industry that is primarily comprised of smaller, independent operators, we continue to see a number of acquisition opportunities and are actively involved in a number of deals in various stages of process. We ended the quarter with a total of 227 locations. Consistent with our prior messaging, we continue to monitor our stores, and we will not hesitate to close stores which we feel do not have a clear path to profitability. We closed one Gander Outdoors location in the third quarter and will continue to monitor our remaining stores.

In addition to our growing number of retail locations, we continue to develop and grow our e-commerce business. E-commerce revenue was over $35 million in the quarter, and we are making additional investments in both technology and distribution to support further growth. We are very excited about our move to a single web platform designed to allow us to consolidate and offer all our inventory and distribution capabilities across all our brands and channels.

I'll now turn the call over to Tom to walk you through our financial results in more detail.

Thanks, Brent, and good afternoon, everyone. During the quarter, we realigned our business into 3 reportable segments: Consumer Services and Plans, Dealership and Retail.

The Consumer Services and Plans segment remains unchanged and the new Dealership segment primarily derives revenue from the sale of new and used RVs, RV parts, services and other items, and RV finance, insurance and protection products sold at the dealerships. The new Retail segment primarily derives revenue from the sale of RV products, parts and services and outdoor merchandise through our 211 retail locations and online.

With that said, let me touch on a few of the financial highlights for the third quarter. On a total consolidated basis, revenue increased 6.2% to $1.31 billion. Gross profit increased 5.9% to $376.3 million. Gross margin was flat at 28.7%. Same-store revenue decreased 6.6% to $1 billion and adjusted EBITDA decreased 17% to $100.1 million.

Looking at the Consumer Services and Plans segment after elimination of inter-segment transactions, revenue increased 12.7% to $52 million, primarily from additional Good Sam Club memberships and additional contracts and policies in force from our roadside assistance, vehicle insurance and TravelAssist programs. Gross profit increased 17.1% to $30.5 million and the gross margin increased 219 basis points to 58.7%.

Looking at the Dealer segment after elimination of inter-segment transactions, revenue increased 0.7% to $1.1 billion, primarily from revenue increases in used vehicles, dealership parts and services, and finance and insurance, partially offset by a decline in new vehicle revenue. Gross profit decreased 1.5% to $277.8 million and gross margin decreased 59 basis points to 25.8%.

Tightly managed RV inventory levels, a disciplined pricing strategy and Hurricane Florence impacted new vehicle revenue. New vehicle revenue decreased 2.2% in total and 9.3% on a same-store basis. The 9.3% same-store decline was driven by a 4.5% decline in units and a 5% decline in the average selling price. Towable same-store units were down 1.5% and motorized same-store units were down 19.6%. The decline in motorized same-store units was primarily the result of our 38.1% per dealership decrease in motorized inventory.

A few other highlights in the Dealership segment. Used vehicle revenue increased 5.5%. Dealership parts, service and other revenue increased 7.1%. Finance and insurance revenue increased 8.5%. F&I revenue as a percentage of vehicle sales increased 103 basis points to 12.2%. F&I revenue per vehicle sold increased 6.1% to $3,869. And gross profit per vehicle sold, including finance and insurance, decreased 5.1% to $8,581, driven in large part by a 14% decrease in motor home sales -- sold.

Looking at the Retail segment after the elimination of inter-segment transactions. Revenue increased 52.6% to $184.5 million driven by new store openings. Gross profit increased 44.4% to $67.9 million. Gross margin decreased 209 basis points to 36.8% and same-store revenue in the Retail segment decreased 10.1%. A significant driver of the decline was a decline in generator sales from very strong sales in last year's third quarter related to the hurricanes in Texas and Florida.

Consolidated operating expenses increased 19.5% to $292.4 million. SG&A expenses increased 17.8% to $278.3 million and included $5.8 million of preopening costs related to Gander Outdoors. The increase in SG&A expenses was primarily driven by incremental wages and selling expenses associated with the additional locations opened over the past year.

Floor plan interest expense increased 5.4% to $7.8 million and was driven by an 86 basis point increase in the average floor plan borrowing rate. Other interest expense increased $16.8 million, primarily from higher average borrowings. Net income, earnings per share diluted, adjusted earnings per share diluted and adjusted EBITDA were $47.9 million, $0.38, $0.49 and $100.1 million, respectively, for the quarter. Please refer to the tables in the earnings release for a reconciliation of the closest GAAP measures to adjusted earnings per share diluted and adjusted EBITDA.

In previous periods, we disclosed non-GAAP adjusted earnings per share that assume that the common units in CWGS, LLC were fully exchanged even in periods where they were anti-dilutive. Going forward, our non-GAAP adjusted and diluted earnings per share for current and comparative prior periods will only include the effect of the conversion of common units in CWGS, LLC, if those common units are dilutive. In periods where common units are anti-dilutive, we will provide the numerator and denominator amounts that were anti-dilutive for your reference.

Turning to September 30 balance sheet. Working capital and cash balances were $594.5 million and $125.4 million, respectively. Total inventory increased 24.8% to $1.5 billion year-over-year, primarily from new stores acquired or opened. New vehicle inventory decreased 1.3% in total and 12.2% on a per dealership basis from Q3 last year. Retail segment inventory was $453.2 million at quarter end.

At September 30, 2018, we had $1.18 billion of term loans outstanding under the senior secured credit facility, $734 million of floor plan notes payable under the floor plan facility and $24.4 million of borrowings under the floor plan facility's revolving line of credit.

Those are my prepared remarks on the third quarter. And I'd like to turn the call back over to Marcus.

Thanks, Tom. In closing, I want to thank all of our loyal customers and our team members for their hard work and dedication. At this time, the company is not revising its guidance, and we look forward to a very aggressive fourth quarter and are planning for 2019.

We'll turn the call over now to the Q&A session.

(Operator Instructions) And we'll go first to Rick Nelson with Stephens.

So I'd like to follow up on Gander Outdoors, the stores where you added RVs, some of your early learnings, and if you could quantify the Gander loss for the quarter and your expectation for the fourth quarter?

So thanks, Rick. I'm pretty pleased with how things are trending at Gander. And we don't internally manage the business, our Gander stores, differently than we manage our Camping World stores. In fact, in the quarter, we've consolidated all of our management, all of our buyers, all of our oversight. And we look at the fact that we have 227 locations, they may have different names on them, but the primary function is the same.

In the quarter, we also added RV parts and accessories to the Gander boxes as well. At this point, we have 5 operating Gander RV dealerships functioning. I would say 4 of them have met or exceeded my expectations. One of them is still behind my expectations. We will continue to open them in waves over the next several months. There should be a few opening, quite frankly, each month, as we go through the balance of the year. And as I've said to people from the beginning, we're not married to any of these boxes. And if one doesn't provide a clear path to profitability or achieve the kind of results that we expected to, we're not hesitant to pull the plug. In fact, Brent mentioned that we closed one in third quarter in Alabama. And we were able to get out of that lease.

There are a few others that we're monitoring very closely. We haven't made any decisions yet. But I want the investor community to feel comfortable that -- we think they're all going to work but if they don't work, we're not going to wait and burn your money while we try to figure it out. So we actually feel really good about it.

And how many stores of the Gander locations will incorporate RVs at this point? And does it make sense to operate stores that can't accommodate RVs?

That's a really great question. We expect close to 40 of them will have an RV sales presence of some kind. And we have some that are under construction that were always under construction that we're just calling them Gander, but they're traditional RV dealerships. Any Gander store that over time, and I don't mean over time, in a short period of time that is a stand-alone without RV sales that can't meaningfully contribute on a four-wall basis to the overall business will be something that we look at. We're not married or in love with this idea of being a big box retailer. We're an RV retailer that happens to have a traffic generator inside it that differentiates it from other people. If we don't feel like we're growing our database, growing the file, growing our transactions or generating RV leads or selling RVs or servicing them, then unless the store is materially profitable, I wouldn't expect that store to be around long term.

Finally, I'd like to ask you about inventory. You've made a lot of progress there at Camping World reducing inventory levels. So if you could comment on where do you think inventory is across your competitors? And are you seeing any easing of the discounting in the industry as the quarter progressed?

I can't speak to what other dealers have on their lot, but the public information that's provided by both the Thors and the Winnebagos will show you what their shipments were for the quarter and what their backlogs are. I know from our perspective, we told the investment community about 6 months ago that we felt like we needed to make some modifications and we felt like business was a little softer. As we went through the third quarter, we made a conscious decision not to chase the market and not to chase it down a black hole, which is evidenced by our achievement on the EBITDA side and our maintenance of our margins.

As we go into the fourth quarter and we look at the cleanliness of our inventory and the runway that we have available to us, 2 things I would expect to have happen. Number one, you should not expect our inventory to ramp up like it did in the fourth quarter of 2017 in an anticipatory move. We believe that we see no signs of the industry slowing down in any sort of significance in the coming 12 months, but we've planned out our orders to be more consistent with how we received our orders previously, January, February and March.

We do, though, however, see an opportunity for us to be extremely aggressive in the fourth quarter in both buying and selling of inventory. And I need to reclarify that we are the market leader in every category. And so we may choose to be more aggressive in the fourth quarter in drawing a line in the sand in local markets, regional markets and national markets depending on the product segment. In some cases, we're going to get more aggressive and maybe have a slight compressed margin. In other cases, we're going to buy cheaper and maintain that margin, but sell it for less, trying to grab a little bit of share back. We always want to balance that with maintaining a level of profitability that works for us, though. And so this has never been a top line game, but I would expect in the fourth quarter that we'll be slightly more aggressive because we believe the other metrics in our business are sound and solid and have afforded us the chance to do that in this last quarter, which consistently is our weakest quarter.

We'll go next to David Tamberrino with Goldman Sachs.

I might have missed it. But how many of your current Gander stores have an RV sales arm to it today? And what's the progression in terms of quarters in order to get up to 40?

So 5 are currently operating. The balance of them are either in a construction phase or a licensing phase. It is our expectation that by May, maybe June, we should have the bulk of them open, a material number of them open. As we open them, we want to also be careful the time of year that we open them. And so it's not typical for us to open things around Santa Claus time. It just gets a little bit more difficult, and we end up putting inventory on the ground and labor on the ground that doesn't necessarily materialize into much revenue. And so we're rolling them out every so often. In fact, one in Wisconsin got finalized this week. And they'll roll out over the next several months.

Okay. Now as we think about the drag that, that's created on your 2018 results and the potential contribution at run rate at maturity, has that slope changed at all? Are we still thinking about hitting a breakeven for that business in the first half of '19? Is there a risk that, that slips, just understanding what you see today and what you're seeing from the 5 stores that have been open.

Yes. So we have been very clear, David, that we believe that it's a 15- to 18-month process for those stores from the moment that they open. And so I would expect that stores that opened 12 to 18 months ago would start to hit their stride in that 15- to 18-month period. The stores that opened up 4 months ago are in the early stages of that. And so I think the long and short of it is, we stand behind our conviction that we believe it's a 15- to 18-month process depending on the market and depending on the store. And that is a store-by-store process, not a entire venture process. We have started to see those stores start to rebound that were closed for a year as we reopened them. And we've seen, in some cases, pretty decent margins. What we haven't seen is the full throttle of the RV piece yet because they've only been open a few months. But in the few that are open, as I said earlier, 4 feel like they're meeting or exceeding our expectations and one of them is underperforming. And if we don't see some life in it in the next 4, 5 months, then we'll pivot to an alternative, which could mean that it doesn't make it.

Okay. And as we stick on the Gander Outdoors topic in general, how or what are you seeing from a customer conversion over into a Good Sam membership? I think we were maybe talking a couple of months ago in the high single digits to the low double digits. I wonder if that's gotten any better or if it's kind of still the same type of conversion metric we should be looking at.

So it's running around 12.5%. In the month of October, we made a decision to raise the price of the club by $1. And oddly enough, we did not see a drag in that conversion metric at Gander. Over time, as more people become familiar with it and our retail team, which runs both the Camping World stores and the Gander stores together, as those teams manage those businesses together, we think they can get better as the customer becomes more familiar and more educated with the entire club benefits program, including most stores starting to really enjoy the RV products and services that are there. And so we believe we'll add somewhere north of 250,000 members in 2018. That's a giant leap over what we were trending before, and we feel really good about it.

Okay. And my final question, Marcus, is just on the new vehicle business from the RV side. My quick review of your financials, it looks like the margin on that business was about 12.6%. I think that's down both sequentially and year-over-year. Anything to call out within that even though you were pulling back on sales?

No, I don't think so. We look at the total transaction. It definitely has been a very competitive landscape through the summer. We don't know when we expect that to soften or become less harsh. But what we do know is that RV dealers can't sell distressed inventory at 0 to negative margin forever. And we have chosen not to chase that. And we knew going in that, that was going to have some impact on our top line. And we felt like that was a course correction that if we followed that down the barrel, we wouldn't be able to turn the car around fast enough. We just needed a steady as she goes and make sure that we're doing service and F&I and all those things right. And as you can imagine, in some cases, customer walks into a store, they have a competitive price, we're looking at the profitability of the entire transaction, including getting a trade-in, the finance, all of those things.

And yes, we felt a little pressure on the specific front-end margin. But that -- I don't believe that we took the kind of pressure that we've seen in other stand-alone dealers as we've looked for potential acquisitions. We've seen far more margin compression than we've experienced and far less favorable F&I performance in those as well. And so for us, I think it's just steady as we go. And we know that a clean slate of inventory will mean that we're the buyer for the product. And whether that's Forest River, Winnebago or Thor, we know that we're a ready, able and capable buyer with the ability to actually go back into the marketplace. And we were able to negotiate very strongly the avoidance of any tariff increases at a minimum to the first of the year. And so we're enjoying those purchases as well.

And we'll go next to Craig Kennison with Baird.

I wanted to ask about the variability of your cost structure. A lot of people are concerned about the economy naturally and would wonder as to your ability to flex your cost structure to maybe a downturn of some kind.

I think that, first of all, that's always been our business plan is to have a variable cost model. Part of that is really a multipronged approach. One is not keeping things open that are drags because those burn not only rent but labor. So that's one. And our ability to pull those triggers and negotiate out of those leases as evidenced historically is one step. Two, if you look at the third quarter performance, our revenue did not meet the analyst expectations, but our earnings did, which shows that as revenue drops, it doesn't drop precipitously or equivalently on the earnings side. And that margin stabilization is a contributor, but the control of SG&A is a bigger contributor.

As we move forward, we are always prepared for a slowdown, but we're not anticipating one. And the reason I say we're prepared is the way we structure our advertising in cancelable contracts without exception, no exceptions. They're always cancelable. And variable pay plans all the way from the corporate level to the field level that's based on the performance of the individual, a commission-based plan. And whether that's a transaction in the service department or a transaction on the dealership side, that's how we look at it. We're also able to flex labor a little bit. What I mean by that is, we're not Target. We're not a national brand. And so if we have a store that is quiet after 8:00, we don't feel the need just to keep it open because the other ones aren't. And so we have the ability to rightsize labor, rightsize staffing and adjust hours of operation like a small town brand. So commission plans and those types of programs give us the ability to stay highly variable.

And secondly, how would you frame the implication of higher interest rates, not only on consumer demand but on your floor plan interest expense as you kind of weigh higher rates against lower inventory?

We record our floor plan interest as an operating expense. So it hits our P&L square. Our interest expense, even though our inventory was down, was higher, our floor plan interest expense for the year. As we think about our forecasting for 2019, and quite frankly, even the third and fourth quarter of 2018, we did not anticipate those increases in rates prior to any of the information being given out. We will be very thoughtful in our 2019 guidance to properly anticipate some level of rate increase. We have not seen it. We have not seen it affect the consumer at this point largely because we sell a less expensive product over a longer period of time. That doesn't mean that it couldn't affect it, but we have not seen it, thus far. And from a company standpoint, it's a straight P&L hit. So if we have $900 million of inventory and interest rates goes up 1%, it's just math.

Regarding that math, what can you share with us with respect to what your actual floor plan rate is or at least what is the change in that rate maybe on a year-over-year basis?

I'm asking Brent because I don't know if it's public information.

No, it's public. And what I will say is, it depends. We have a grid. We have metrics on our pricing for the rate, which depends on different factors. So depending on, for example, where the working capital is in the business, depends on where the rate is under the floor plan facility.

Let me tell you this, Craig, we have a very favorable, very favorable rate on our floor plan facility, very favorable. And I think that rate is published out there, but it is very favorable. But when the rates go up, it definitely requires us to think about how we're going to tighten up other things. We can't just sit back and say, oh, the rate went up, there goes X million dollars. We have to find that money somewhere. And we're working hard without wanting to incriminate the business too much.

And finally, with respect to 2019, any early indication on where you think industry retail may trend?

I can't speak to the industry and we're deep into the budgeting process as we speak. But I feel like we are, from an inventory standpoint and from an expense standpoint, we are well positioned for the 2019 calendar year. We've made the bulk of our investments into new stores, into openings and infrastructure. And what we're now focused on is using our available cash flow in 2019 to secure our position as the leader, grow our position in every market as the leader, delever and potentially look at other alternatives of what to do with our excess cash flow that I talked about earlier.

And Craig, it's disclosed in the 10-Q that you'll see that our floor plan rate as of September 30 is LIBOR plus 2.05%.

2.05%, not 2.5%, 2.05%.

2.05%.

We'll go next to Seth Woolf with Northcoast Research.

I want to start off RV business. I think when we all visited the Gander store in Kenosha, comments were made that RV retail was kind of running at a clip like what we saw in 2Q. Clearly, it decelerated. Wondering when that deceleration took place. Maybe any clarity you could provide to explain that? And then what have you guys seen so far in 4Q?

The back half of Q3 is where we started to see the promotional activity in the marketplace accelerate and our willingness to participate in that process decelerate. I think additionally, and we didn't talk about it. It's not a huge thing. But we did suffer a few bumps with the hurricane that sat on the East Coast. It sat there and it sat there and it sat there. And one of the things that is important to understand both for the auto business and for our business is that it isn't that people didn't come in. The sun could be shining. What happens is, if there's an insurance moratorium where a transaction can't even be bound. So we suffered for a good couple, 5 days. We did not talk about that, and I always hesitate, as I've said before, to talk about it, but it was real.

But I think the large part of that adjustment came in the back half of Q3 when we saw other dealers' promotional activity really start to ramp up. We actually elected to remove our toe a little bit from the water and get focused on the store-by-store basis, market-by-market, what inventory has to go? What has to stay? What's fresh? And what are the replacement costs for that inventory? Because if we got into that game of competing on the margin side and we're hearing about tariffs and we're hearing about all these other increases, we did not want to get into an environment where we were going to be selling something for a very slim margin and replacing it for 2%, 3%, 4%, 5% more than what we just sold it for. And so we were very particular about that. And I know that Roger had a very strong filter process on transactions with low margin threshold. And it is true that there are moments in time where we just said, pass, we're not going to do that. We're not going to buy the market. Our inventory needs to be right. And we need to get prepared for the future and not play the game.

Okay. And just real quick, what have you seen in October? Has that environment continued?

I think the promotional activity is still pretty robust in the marketplace. We are maintaining our philosophy. But I wouldn't be surprised if we, as we have clean inventory and as we're making some aggressive buys, if we got more aggressive in November and December because we're not really dealing with a lot of revenue and a lot of movement anyway. And so we may try to make a market and create some momentum going into the January show season reminding everybody what our position is in the market.

Okay. That helps. You start to see some of the buying power show through later in 4Q.

Seth, I think you'll see most of that buying power in the coming 12 months because our transaction volume, unfortunately, fourth quarter is our softest quarter historically for 20 years. I don't know that you get the full weight or the full benefit of that. You obviously get some, but I don't know if you get the full weight of that. But I know that Roger and I have decided to be more aggressive in certain categories and segments of our business where we think that there's a void in the market and we have the manufacturer support to execute it.

Okay. I guess maybe just if you could talk about your buying power for a second. It sounds like the order of magnitude, meaning what kind of advantage you guys have because I know there are some smaller dealers that are still sitting on a lot of product that they pay at a higher cost. But some of the work that we've done would suggest the OEMs are giving very robust discounts out to even some of the smaller ones. So I'm just curious, like, some of the discounts we've heard are pretty significant. So what kind of advantage do you guys have being the largest retailer in the market?

I think, first and foremost, Roger has put together over the last 5 years a team that manages the entire asset pool. And it is a science, not an art. In some cases, they're art and a science. It is a science, not an art. And they developed key metrics and key tables and key indicators that tell us the right kind of inventory to buy at the right time of year. I am sure it is true that certain manufacturers are offering big discounts, but it may not be on products that are necessarily beneficial or core to the marketplace. What we want to do is we want to achieve the maximum discount on the appropriate product. And what we don't want to do is buy product because it has the illusion of having a 5% or 6% discount, but the brand does not carry any sort of status or the floor plan is obsolete or something that may just be stale. This notion that everything sells for a price is true, but I don't believe it's necessarily true in the RV business.

And so what we want to do is we want to use our leverage to ensure that we're getting the best deal, period. But then we also want to get the best deal on the right product at the right time. And I think Roger and I have no problem acknowledging that in the fall of 2017, in the moment, we anticipated that there would be no glut in inventory in 2018, and we brought a little bit of our orders forward. We tried it. It didn't work. We will never do that again unless we see some indication to do it. Getting back to our normal plan is fine. What we have the ability to do today that we believe other dealers do not is not just talk about inventory that we're buying today. What's in the yard? What they have to clear the lot with? That's not what we're interested in. It's a little bit of that, but it's, what do the orders look like November, December, January, February, March, April? And if I give you these orders, what am I getting for giving you this backlog right now? We have to continue to not buy inventory for today. We have to buy it for the next selling season and plan 4, 5 months in advance. We believe candidly, and I think Roger would agree, probably this year, while it was very tough for us, we learned a lot. And we believe that the learnings well position us for '19 on the inventory.

Okay. Excellent. I guess just the last question for me is, so you guys reaffirmed the guidance. That's obviously positive. And I guess hoping you could help me reconcile a couple of the comments. So I get that the buying power, it's going to be very beneficial for you guys at some point. But you did say, I think you said, there's some dealers out there selling these products as if it's distressed inventory. They're not making any profit on it. It's very promotional. And when I take a step back, the last few quarters, every quarter, the trend has not been positive. So what have you seen post 3Q that gives you confidence that reaffirming the guide was the appropriate thing to do?

Seth, I'm sorry, the trend that you're referring to over the last several quarters, I'm sorry, what trend is that?

Well, I mean, comps have been decelerating. GPUs have been coming down, like margins in general. I know there's a lot of noise back there, but the operating environment continues to seemingly deteriorate. And I'm just curious what you've seen that gives you confidence to reaffirm the guidance?

I don't have any information in front of me that would lead me to believe that the guidance should be adjusted. And as I look at just even the first couple weeks of November and the decisions that Roger and I have made on certain segments of inventory and how we're pricing it and the collaboration that we have with our manufacturers in the last 30, 60 days, I feel like we'll be able to move the needle at a disproportionate rate. Look, I've been wrong before, but I've been right for 15 years, other than a couple of times. And I look at the cleanliness of our inventory today, and I can't speak to what other dealers have, but the supply of that inventory isn't infinite. It has to run out at some point.

And we have seen promotional activity continue. And whether it's to the same extent, more or slightly less, it exists. But I think in the fourth quarter, as I said a few minutes ago, I decided to just remind everybody what our position is in the marketplace. And we'll do that digitally through pricing and through our presentation of specific products in collaboration with our manufacturers. I don't want to speak specifically to what the manufacturers are doing for us versus other dealers. All I know is that our top 3 manufacturers, we are a huge part of their business. And we, unfortunately, did not buy much in the previous 2 quarters, evidenced by, I think, some of the results that have been reported, not by us, but by them. And we feel like we're ready to re-engage, but under terms that work for everybody, largely, us.

We'll go next to Ryan Brinkman with JPMorgan.

This is Daniel for Ryan Brinkman. I've been hearing about pretty good sized price increases by manufacturers, such as Thor, in order to pass along increased steel and aluminum costs due to tariffs and because of wage inflation. I think that wage inflation is because the economy is so strong. So my question is, how do you think about the impact on demand of, on the one hand, the increased prices of the vehicles you'll be selling in the new model year versus the ability of the consumer walking through your door to cope with that increased cost maybe because he, too, is feeling the impact of the stronger economy?

Yes. I think there's a fine line with the manufacturers of making sure that they don't have total erosion because of tariffs. But the fine line really can get crossed when they see it as an opportunity to enhance their margins. And I think certain manufacturers are more intelligent about understanding the marketplace and price appropriately. As our company looks at it, we have done a really good job in avoiding the discussion for the most part around these increased costs, whether they're related to labor or whether they're related to tariffs. And that's largely a function of us driving our inventory down in the early part of the summer, through the summer and through the early part of the fall and getting well positioned to have intelligent conversations about putting inventory orders in place to create a real backlog. And one of the things that the manufacturers do need in order to avoid price increases on labor and materials is an appropriate schedule to know exactly what they have coming to them and when so they can schedule it properly.

I think what hurt us as an industry is the inventory started to get manufactured at a rate that potentially was exceeding the sell-through and it got backed up a little bit and it sort of spun out of control on the discount side. Proper planning, not speculative building and us using our relationship, not our leverage, to give them advance orders is, I believe, what's avoided us from having to have price increase discussions. We're just not having those with our manufacturers today. And it's not because we're being obstinate saying no. I think lastly, as the customer walks through the front door, the customer is buying a unit that is, say, $30,000. And they're financing it over 180, 210 months, maybe even 240 months. And so a small increase isn't going to be a deal breaker for them. But I don't think that gives us a license to just assume that we're just going to pump up all the prices and pass them along to the consumers. And so our strategy in 2019 and going forward in the balance of '18 is to ensure that we understand where the market is, we understand where the customers are, and we thread that needle to ensure that we maintain our position.

We'll go next to Tim Conder with Wells Fargo Securities.

This is actually Marc Torrente on for Tim. Just a few questions for us. Going back to the OEM support and discounting for dealers, are you seeing any return of floor plan support across the industry to incentivize more level ordering?

I'm not familiar with it because that's not something that we would ever ask for or even be open to. We want to keep our discounts clearly associated with a specific VIN number, not only for accounting purposes, but for managing the transaction all the way to the customer. And so I'm not familiar with anything in that regard.

Okay. And then with continued volatility in the market, are you seeing any, I guess, increase in the pipeline of potential acquisitions or valuations being asked?

Brent and Roger are constantly working on acquisitions. I mean, we see a deal flow that's probably consistent with what we've seen, maybe even a little bit higher. We told the group about some acquisitions that we were permitted to announce on the date of this call, but there are some other transactions working. It is our goal that we will continue to leverage our infrastructure and our size and our excess cash flow in 2019 to be very aggressive and very strategic and continuing to add on to the scale of this business. That is really, as I think about 2019, we've made investments into inventory, we've made investments into CapEx, we've made investments into opening things. Right now, we want to execute what we have and use our excess cash flow for accretive or strategic initiatives. And if not those, then other smart ways to use our capital.

We'll go next to Brett Andress with KeyBanc Capital Markets.

Maybe asking the guidance question a different way. The sales guidance that you reiterated does imply a pretty big inflection year-over-year in the fourth quarter. I think something like a 30% increase. You did about 6% this quarter. So I guess I was just a little unclear, I guess, on what gives you the confidence in that inflection? Are you expecting RVs to accelerate? Is Gander maybe a bigger contributor than we expected? Just trying to understand the puts and the takes into the fourth quarter.

Yes. So yes, thank you for asking. So we're expecting to maintain or slightly increase the RV side of things. That's the goal. But remember that we have many new businesses as part of our revenue stream in the fourth quarter of this year that we did not have in the fourth quarter of last year. We have The House. We have Uncle Dan's. We have Rock/Creek. And we have the Gander stores. And so there is other business segments that contribute nicely in the fourth quarter because that is their time of year. So the $100 million that you speak of isn't attributable to just the RV side of things.

Got it. Okay. And then I wanted to ask about the Gander Outdoors box that you closed back in September in Alabama. I guess, what ultimately led to that decision? Did you get the market wrong in that region? Was the lease not favorable? I guess I'm just kind of looking for maybe a postmortem on what you learned from closing that store.

So the lease was very favorable. In fact, we are out of that lease. And so we have no more obligation to that property. We picked up all of our inventory, all of our signage and all of our fixed assets, and we moved that to a location in Alabama where we actually have a dealership. I think in that particular case, I take the blame for any location that we picked. Florence, Alabama looked like it had a clear path to profitability. And after 4, 5 months of reviewing the daily reports, the foot traffic, all of the things, I wasn't satisfied with the rate that it was even moving at. And I did not want to burn another dollar for another day. I look at every single location, Camping World location, dealership location, any business segment where we don't feel like it doesn't have a path. If that path looks like we got to artificially promote it or do something to prop it up, we're not interested in doing that. We have a finite amount of capital and a finite amount of resources, and we'll take those resources and deploy them in a more intelligent way.

I am also closely monitoring other locations in a similar fashion that I managed, that I monitored Florence. We haven't made any conclusive decisions yet, but I'm not opposed to any of them. In most cases, we'll be able to work out of the lease. But I don't want anybody to think that a $20,000 a month rent payment is going to be a hurdle for us shutting a store down. Part of it was, we got into those leases right. And so if it didn't work, it didn't work. And we take our inventory, we get our cash back and we move on. So I would just say, it was my fault. I went back to a location out of the 160. I picked one that was wrong. It was my fault.

Understood. And can you tell us how many of those stores are on your watch list now? I think it was maybe 5 or 6 a few months ago. Just any update on how many you're monitoring.

Well, I'm always watching all 227 of our locations. And including the way I think about it, we have locations and they may be called different things. There's always the dirty dozen, right? And it doesn't matter what they're called, Gander, Camping World, there's always a dirty dozen. And we're always monitoring those. And we've proven historically that we can close them and get out of them. And we will not hesitate to do that. So I don't want anybody thinking that we're stuck in anything. We're not stuck in anything. No idea is stuck.

And we'll go next to Gerrick Johnson with BMO Capital Markets.

So Tom, when you apply the new methodology of calculating EPS, does it change EPS in prior periods? And what are prior periods that may have been overstated because you were using shares that were anti-dilutive?

No, you can derive the prior period by using the anti-dilutive data in the numerator and the denominator at the bottom of the schedules.

Okay. And then on same-store sales down 4.5% in units. Can you give us a dollar amount for that?

The dollar amount in the units?

No, the dollar amount associated with that.

What were same-store sales down in dollars?

How much?

New vehicles down 9, 3.

He wants the dollar amount, $9.3 million?

3%.

He wants the dollar amount.

Same-store unit sales or the revenue was down about $60 million.

And I would add that the bulk of that, I don't have the exact number, is motorized. And we've been very candid and open with the group since the inception about our feeling about that particular segment.

Okay. So same-store sales down 4.5% in units. If you were to talk about that in dollars. I think I heard a 9% number back there. Is that...

No, $60 million, $60 million.

$60 million, about 6.3%.

6.3%. Great.

And we'll go next to Jim Chartier with Monness, Crespi & Hardt.

I was just wondering, Marcus, can you give me some indications, such as traffic or sales lead generated or kind of return on marketing investment that you saw in third quarter that makes you confident that some of the decline in sales was due to your decisions to kind of pull back on inventory. And if the kind of continued strength in those metrics gives you the confidence that you can turn the business more positive in fourth quarter.

Yes. Our web traffic was at record highs. And so we saw the inquiries from consumers at an all-time high. Now some of that is a natural evolution of how customers shop. And we saw essentially flat foot traffic in our stores. And so we didn't see anything that would give us the indication that consumers' appetite to get into the lifestyle diminished. What we did see, though, is consumers are far more educated and they're looking for a deal. And so we had to be far more scientific and far more discerning with the type of transactions we kept versus we didn't keep. But I'm not seeing anything that gives us any concern over that.

From a marketing standpoint, we believe that we can be more digitally aggressive in the fourth quarter. And we'll do that in a very scientific way by market, by segment, by price against competitors that believe that they sort of have it figured out.

In terms of return on investment, as I look at the money that we spent and I look at the bottom line, I feel like we were able to achieve the EBITDA forecast that the analysts had for us even though it fell short. So I don't feel like we overspent. Candidly, I wish I would have spent a little bit more. And we may end up doing so in the fourth quarter but I just want to remind people what our position is in the market in the fourth quarter.

And we have a follow-up from Seth Woolf with Northcoast Research.

Just listening to the call, something kind of occurred to me. So as the quarter progressed, you guys got more disciplined with how you are pricing the product. But when I look at the comps, lower margin motor homes were a pretty big drag on the business. So with the discipline you got late in the quarter and the favorable mix shift, just how intense was the promotional activity early on?

I'm sorry, Seth, I don't understand the question. I apologize.

Well, I mean, like GPUs were down quite a bit. And you had a benefit seemingly from a positive mix shift towards towables. So that's totally just the promotional environment early in the quarter?

Yes, I mean, our promotional environment or the overall, is that your question?

Well, I guess, it's the overall but your response to that.

Yes, I mean, so as I've said, yes, as I've said many times, we look at the gross profit as an entire transaction. For your purposes, for the market's purposes, we break it out for full disclosure. But when we're looking at the transaction as a whole, we may have a 7-day-old unit that we lose $1,000 on, but we make $4,000 on the back end. And that's a transaction that gets approved by the store manager because it's $3,000 of gross profit for our company and the trade in. And so those transactions are managed, as you would imagine, at a store by store basis with a manager by manager basis on a day to day basis. And their directive is to have transactions, increase the number of transactions, increase the number of Good Sam memberships and increase our footprint. And make sure that the transactions are profitable. There are some cases where people walk in and they pay cash, and we only make $2,000 on the front end and nothing on the back. And so I can't speak to whether we were more or less promotional. The whole quarter felt like we were under heavy promotional activity in the marketplace. And I would say, I don't think anything changed throughout the quarter, I'm sorry.

At this time, I would like to hand the call back over to Mr. Lemonis for any additional or closing remarks.

We thank you for your continued interest and support of Camping World. We look forward to speaking with you guys soon. Thanks.

That does conclude today's conference. We thank you for your participation.